 In case you hadn't heard, we have a bit of an issue with inflation right now. Recent polls suggest that it's the biggest economic concern for voters across all parties, and it's not even close. As of the end of January, the U.S. inflation rate hit 7.5%, the highest it's been in 40 years. People are seeing prices go up for pretty much everything. Food, energy, cars, housing. And while wages have also gone up, they're not increasing fast enough to keep up with rising prices. That's often the case with inflation, and it's why poor people who generally don't own stocks or other kinds of interest-bearing assets and who live paycheck to paycheck tend to be hurt the most. So yeah, this is a big problem, especially for people in the working and middle classes. Of course, the U.S. has been dealing with inflation forever, but it's usually been held to a fairly low rate. It's still bad, but at least it was bad in a mostly predictable way. Not so much anymore. And even though the process effects and causes of inflation are knowable enough that there's a children's book about them, experts are still claiming to be baffled by the whole thing, saying that no one could have seen it coming. Really? No one? Now, you might be wondering what any of this has to do with the movies and TV shows I normally talk about on this series. But as it happens, the main plot of Amazon's new adaptation of Reacher centers around a counterfeiting operation. In other words, the show's villains figure out how to make the money printer go… This is highly illegal because, as everyone knows, only the Federal Reserve and the United States Treasury are allowed to do that. So hit the subscribe button, ring that bell icon, and strap in because we're diving into the connection between Reacher and U.S. monetary policy on this episode of Out of Frame. Before we get any farther, there will be some spoilers for this season of Reacher. As I mentioned, it's available to watch on Amazon Prime, so if you haven't seen it yet, go check it out. Done? Cool. Reacher is a fairly straightforward mystery series. Our title character, Jack Reacher, is just Reacher, wanders into the fictional town of Margrave, Georgia, and is promptly arrested for a murder that occurred the night before. At the police station, he's questioned by Detective Finley while being frustratingly chill about the whole situation. It turns out that Reacher is a former military police officer, but has recently retired from the Army. The one actual clue the police have regarding the murder is a phone number hidden in the victim's shoe. It belongs to a local finance guy named Hubble, who, upon learning why the police have come to his door, falsely confesses to the crime. Reacher and Hubble end up spending a couple of days in the local prison together, and in between warding off attempts on their lives, Hubble gives Reacher some details. It turns out Hubble is a currency manager, who got caught up in a shady scheme he didn't really want anything to do with. He'd been warned that if he caused any trouble or talked to the police, his bosses would torture and kill him and his family. Eventually, Reacher's alibi is confirmed, but when he gets out of jail, he discovers that the murder victim is actually his own estranged older brother, Joe, a secret service agent who was in Margrave investigating a major counterfeiting operation. What a twist. I'm sure most of you know what counterfeiting currency is, but in essence, it's a type of fraud where the criminal finds a way to reproduce fake money that can pass for officially minted cash. It's a crime that's just about as old as money itself, and it used to be a lot easier to accomplish. A few thousand years ago, all one would have to do is cut, shave off, or melt down some bronze, gold, or silver and replace it with a passable alloy using less of the metal. Then you'd just reform it into the kinds of objects or coins being used as money by the local culture. As long as your coins look right, nobody but a metallurgist would know that they're all 50% bronze instead of 100% and you get to double your money. But of course, there's a good reason we've always recognized counterfeiting as fraud. One of the longest-standing and most universal concepts in economics is the connection between prices and the ratio of supply and demand. When there's greater demand for the same amount of stuff, prices go up. The other way around, prices go down. Thing is, one way that demand can increase is if the supply of money increases. If you walk into a town with a stack of counterfeit coins, you have a lot of unearned power to pay for goods and services other people want. This introduces more money into a system without changing the supply of goods and services, and the result is that those goods and services are going to cost more. Counterfeiters make it so that everyone's money has less value. And I mean, unless you're the one committing the fraud, you won't have any more coins to spend. This is the crime at the heart of Reacher. The largest employer and primary benefactor of Margrave is Kleiner Industries. The influx of jobs and money from Kleiner has basically resurrected the dying town, and so the business and its owners enjoy a lot of goodwill and protection from the local government. But a lot of their cash is actually counterfeit. Honestly, what would an Amazon Prime series even be without a rich guy as the main villain? We'll probably never know. Anyway, as I said earlier, governments really don't like it when anyone counterfeits their currency, and we've come a long way from the days of easily debasing metal coins. So there are a lot of safeguards built into the printing process. Special ink, special paper, magnetic strips, complicated designs and textures, heavily protected printing plates. It's all designed to make our money more difficult for criminals to replicate. But the Kleiners have discovered a way to wash the ink off of small bills so they can be reprinted as $100 bills. Kleiner's biggest client for these fake hundreds is, interestingly, Venezuela, which makes a lot of sense given what that government did to their own currency. Like I said, it's actually a fairly straightforward mystery. What I find interesting about it are the detailed discussions about how difficult it is to counterfeit U.S. currency and the amount of study that's been done on the effects of efficient and extremely accurate counterfeiting. The sheer amount of effort that the government goes to in order to prevent rogue actors from printing money is extraordinary. But historically, the biggest counterfeiters of all have always been governments themselves. Even while it imposes harsh penalties on counterfeiters, the United States government is awfully cavalier about printing money whenever it gets to be the one doing it. And although you'll hear all sorts of excuses for why prices are going up right now, in the words of the great Chicago school economist Milton Friedman, inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. In other words, money printer go but let's back up a little bit here. Technically, the term inflation refers to the decline of purchasing power of a given currency over time. This is generally reflected by rising prices and in fairness, prices can go up for a number of different reasons. Maybe there's a natural disaster and replacement goods can't be delivered effectively. Maybe there's a war that destroys a bunch of factories, railways and roads and the goods people need can't be produced or transported. Maybe there's a global pandemic and governments shut down entire industries without any thought to the consequences causing massive supply chain breakdowns that last for years. Who can say? One way or another, the gap between the demand for and the supply of a scarce good increases. And so too does the price. But just like I explained with respect to counterfitting a bit earlier, sometimes prices rise in response to an increase in the amount of currency available to spend. The value of money is just as connected to supply and demand as the value of anything else. If the government creates trillions of dollars worth of new money, a lot of people suddenly have more currency than they did before and the law of diminishing marginal utility which basically means that the more you have of something, the less you value it comes into play. Each unit of currency becomes a lot less precious and people become a lot more willing to spend what they have. You might think that more people having more money would be a good thing and sometimes you'd be right. But increases in the money supply don't hit the entire population at the same time or in the same amounts. Think of inflation like squeezing honey from a bottle onto a flat plate. At first, it's just a big glob of honey in the middle, slowly spreading out, getting wider and flatter. Eventually, honey covers the entire plate, but it takes a while. This is similar to what happens when the government expands the supply of money. The individuals and institutions that get the money first get the greatest benefit. At that point, they have a greater number of dollars, but nobody else does, so general prices are still relatively low. As those people use the money, typically by lending it to other people in exchange for earning interest on it in the future, the money begins to spread out into the rest of the economy. The borrowers and merchants that got the money from the first recipients spend what they're lent or paid, then the next teardown does the same thing and so on and so forth until the new money is filtered through to the rest of the economy. The people who got the money first benefit way more than the people who got it last, both because they got a lot more of it and because they got it when it was more valuable. But I can already hear some of you complaining. Certain politicians claim that all the price increases we've seen lately are the result of corporate greed. Are they right? Uh, no. First of all, it's a weird claim, suggesting that business owners spontaneously become more or less greedy at different times. Business people are no more greedy today than they were last year, and if you believe that greed is the cause of price increases, you'd also have to believe that some kind of decline in greed is behind price reductions. That's pretty silly. But there's another problem with the claim we need to address. Even though current inflation, as measured by the consumer price index, is indicating a 7.5% increase from last year, the producer price index, which basically measures input cost for producers, has increased by 9.7% in the same time frame. This means that the costs businesses have to pay for supplies are going up faster than the prices they're charging consumers. Our problems are not caused by greed. They're caused by policy choices made by the very politicians trying to deflect blame. But that doesn't mean the situation we're facing right now in the US is simple. Yes, there has been a dramatic increase in the money supply. About 80% of all the dollars that have ever existed have been printed in the last two years. That's always going to have an inflationary effect. Stimulus payments from the government, paid for with newly printed money, have artificially spurred demand by consumers. And we have supply shortages due to a global economy that still hasn't recovered from government shutdowns. Which, for the record, I told you would happen way back in May of 2020. When you add all of those things together, I'm not sure how anyone could have reasonably expected anything other than a serious increase in inflation. Clearly, the United States government has no problem with just poofing money into existence. In fact, that's exactly what fiat money is. The word fiat itself is the Latin for let there be after all. Although printing a tremendous amount of money is something governments are legally allowed to do, it's fundamentally no different from counterfeiting. The effect is the same in either case. What the government actually objects to is losing its monopoly over the creation and distribution of money. You see, the US dollar is what's called the global reserve currency. It's the benchmark against which all other currencies are measured. So it's pretty understandable that the US would want to be the sole controller of how much of it exists in the world. But over the last several decades, the federal government and the Federal Reserve have been trading long-term financial stability for short-term political expediency. The government has been printing money at a massive scale in order to partially finance all sorts of projects, programs, and acts of aggression it can't afford through taxation alone. And now inflation has finally gotten to the point that the Fed can no longer ignore it. Since the Fed controls interest rates, which is a power it really shouldn't have, by the way, raising rates is a good and probably necessary way to slow down price increases. Unfortunately, it's also going to slow down spending and could contribute to an economic recession. The government and its central bank has managed to put itself between a rock and a hard place with its reckless monetary and fiscal policies. Voters are unhappy with inflation, and rightly so. And they're also going to be unhappy with a probable economic downturn, especially now that people are just starting to get back on their feet from the last couple years. People with political power have been making poor decisions regarding our currency for a very long time, and everyday individuals are always the ones to pay for it. I wish I had better news for you. It's probably going to get worse before it gets better. The best we can do is actually learn from these mistakes. The consequences of demanding the short-term satisfaction of ever-increasing government spending cannot be avoided forever. There will always be a reckoning. Granted, it's not going to be a gang of murderous Venezuelans demanding the discounted C-notes you promised them like in Reacher, but it will still hurt. The people of Margrave should have considered whether the largesse of Kleiner Industries was too good to be true before they started relying on it. So too should more people in the United States have considered whether helicopter payments during the pandemic, or year after year after year of deficit spending, was also too good to be true, or at least too good to be sustainable. Both the fake city of Margrave and the very real United States made their beds. And unfortunately, it's all of us who have to lie in it. Hey everybody, thanks for watching this episode of Out of Frame. How's inflation affecting your life? Are you worried about it? Leave a comment and let's talk about it. If you like this video, be sure to let YouTube know and subscribe to the channel. If you love the whole series, please consider a monthly contribution on Patreon or subscribe star. Supporters get a private channel on Discord, free swag, access to bonus episodes for our weekly behind the scenes podcast, and other cool stuff. This episode was made possible in part thanks to our supporters, especially our associate producers. So to Connor McGowan, Dan Rich, Richard Lawrence, and Matt Tabor, thank you. As always, don't forget to find us on Twitter, Facebook, TikTok, and Instagram. Find all the links for everything in the description. I'll see you next time.